Airbnb Just Lost a Limb in its Fourth Biggest Market

Amid a blossoming backlash against mass tourism.

Spain’s eighth largest city by population, Palma, made history this week by becoming the first Spanish city to impose a blanket ban on all tourist apartments. Starting in July homeowners in the capital of the popular island destination, Mallorca, will not be able to rent out their apartments to tourists. Only owners of detached, single-family homes, which represent just 12% of the city’s housing stock, will be left untouched by the ban.

The ban is intended to put an end to surging rental prices in the city. While vacation rentals are not the sole cause of the 40% rise in average rental prices since 2013, they are certainly a big factor. According to one study, the number of non-licensed apartments on offer to tourists increased by 50% between 2015 and 2017 alone.

In 2017 the regional government introduced a raft of measures that allowed authorities to issue apartment owners on the islands of Majorca, Ibiza, Menorca and Fomentera with fines of up to €40,000 if they were caught renting unlicensed properties to tourists. Travel agents or websites caught advertising unlisted flats to rent on the islands, such as Airbnb and HomeAway, face fines of up to €400,000.

On Monday Palma’s city council escalated the regulatory assault by banning tourist apartments altogether. For Airbnb, the ultimate disruptor of global tourism, this trend is most certainly not its friend.

Spain is the firm’s fourth biggest market in terms of listings, after the U.S., France and Italy. But the company is losing the battle for hearts and minds. Many local residents of tourist-saturated towns and cities no longer feel the benefits provided by unfettered tourism — namely money and jobs — are sufficient compensation for the toxic mix of externalities it leaves in its wake, including sky-high prices and rents, overcrowding, noise, overstretched public services and infrastructure, and the erosion of the town or city’s distinctive character.

In Barcelona, Airbnb’s sixth biggest global destination, the situation has got so bad that in 2017 local residents identified tourism, which provides €12 billion of funds annually, as the biggest problem the city faces — worse than poverty, crime, terrorism and unemployment.

To make matters worse, many, if not most, of the landlords who have been profiting from the unprecedented tourist influx do not pay local taxes. According to El País, only 645 of 11,000 holiday rentals being offered to tourists in Palma have the licence required to do so.

This is also a common complaint in Barcelona, where the City Council has been locked in a bitter battle with Airbnb over unlicensed accommodation. At one point the Council sent out a blanket letter to local residents warning them that owners of unregistered apartments could face fines of up to €30,000. The letter also urged residents to snitch on any neighbors who they believe are running illegal tourist accommodation operations in their buildings. Given the volume of noise and scale of disruption tourist apartments tend to produce, many locals were more than happy to oblige.

Airbnb responded by offering to limit the number of rentals available via non-professional landlords in Barcelona’s central Ciutat Vella district. The proposal fell short of appeasing the local government which continues to insist that Airbnb take concrete steps to ensure that all of its affiliated apartments have tourist accommodation licenses.

The problem is not just the legal status of the apartments being rented; it’s also the type of landlord doing the renting. Given the huge profits that can be earned, more and more private investors are snapping up apartments in popular tourist destinations. In Barcelona it’s not just professional investors moving in on the market; so, too, are organised criminal gangs, who are taking advantage of the irresistible money-making machine without even having to actually buy the property.

Earlier this month the backlash against tourist rentals moved to Paris, Airbnb’s second largest global destination with 65,000 homes listed, where authorities filed a lawsuit against the company and two other firms for failing to respect local laws regulating holiday rental properties. Airbnb’s response was to bemoan Paris’ “complex, confusing” regulations while urging it to “follow the path… of other cities with whom we have worked efficiently on common-sense measures to promote responsible furnished tourist rentals,” such as London, Berlin and… Barcelona. No, seriously.

Airbnb hopes it has finally made authorities in Barcelona an offer it won’t be able to refuse: to ensure all Airbnb visitors to the city pay a tourist tax, a similar offer to one it has made to local authorities in France. Meanwhile, Spain’s cash-hungry government has begun to show an interest in the fiscal footprint of tourist rental platforms like Airbnb and their hosts. The government plans to launch a new law in July requiring platforms to provide a kaleidoscope of information on all their hosts, including the identity of the home owner, the assessed value of the property, how many days it was rented for and for how much.

At first, representatives of Airbnb reportedly agreed to cooperate with the government’s request. That was on Tuesday. On Wednesday Airbnb denied saying any such thing. The proposed new law is both “confusing and impracticable,” the company complained. A lot of the data requested “has no relation to taxes” and providing such information would contravene EU rules on data-protection.

While the company may have a point, especially when it comes to data protection, Spain’s government, faced with one of the worst pension crises in Europe (largely of its own making), needs money fast. And it will do just about anything to get hold of it, including trying to shake down the world’s biggest home rental service.

For Airbnb, it’s just another headache in its fourth biggest market. Where management’s real concern must lie is in the blossoming public backlash against mass tourism in places like Barcelona and Palma de Mallorca, because trying to stop that trend while also trying to increase the size of its market in those same places is more or less impossible, even for a firm backed up by a global army of corporate lawyers and lobbyists. By Don Quijones.

As far as I can recall, Oliver, a court — not sure if it was in Barcelona or Madrid — cancelled a fine the local government issued against Airbnb. It’s true that many of the laws the Catalan government passed in the last three or four years relating to the economy and housing have been blocked by Spain’s Supreme Court. Barcelona City Council did managed to close down quite a few unlicensed apartments after launching its campaign, but just as many, if not more, have opened up.

This is probably why Palma’s City Council went the whole hog with its latest law — to leave no room for ambiguity.

Nick

Apr 26, 2018 at 4:07 pm

I sold 1bed 1bath Co-op apt in Brooklyn, NY last year. The new owner has been posting it on Airbnb. For anyone familiar with Co-ops, i’m sure you’ll know whats wrong with that picture. He was given a first warning by the board which he ignored and continues to rent the place on airbnb. NYC is very owner friendly, cuz of so much demand for rentals. He has no issues renting it out, but he charges much more tourists on airbnb. You might not be seeing impact on hotels, thought depends on the data your using, but I’m definitely seeing an impact in rental prices. Its removing perfectly decent rental apt off the long term market. Another friend of mine had his rent raised by $800/month.
If you can get away with Airbnb short term renting and more then double your income, why rent long term? Especially if you have a wife or older children unemployed.. catch my drift?

Rates

Apr 26, 2018 at 4:20 pm

I am not denying AirBnb’s disproportionate impact on the rental market, but here’s how this is supposed to play out:
1. People flock to AirBnb.
2. Hotels are supposed to lower the price due to the drop in demand, but they don’t. I am going to Barcelona one month from now and the difference in terms of pricing is stark between AirBnb and hotels. Guess which one I am going with.

If hotels drop their price, I wouldn’t mind going with hotels, and many other people too which would reduce the demand for AirBnb. But no, hotels keep their price constant and the demand for AirBnb continues to skyrockect.

The only explanation is Muppets have WAY MORE MONEY that most people think they have. Even with “cheap” AirBnb rooms, travel is really a luxury.

intosh

Apr 27, 2018 at 1:48 am

I think part of it is the overall surge in tourism (e.g. Chinese). Not all of them do AirBnB.

backwardsevolution

Apr 28, 2018 at 2:17 am

It is most likely the Chinese who have bought up all of the AirBnB’s. They’re doing it in every city they touch.

intosh

Apr 28, 2018 at 2:33 pm

@backwardsevolution

I’m not sure who is behind it but in Osaka Japan, there are entire 20-storey apartment buildings just for AirBnB. I wound’t be surprised if Chinese money bought many of them.

james wordsworth

Apr 27, 2018 at 5:25 am

A big reason is that Airbnb hosts rarely pay any tax. At hotels you are usually hit with sales taxes, tourist taxes, local taxes etc. Combined these make a big difference to the final price. Then there is “housekeeping”. Airbnb hosts are definitely not paying union wages.

I use airbnb on occasion, but am fully aware that I am getting a better price because they are “cheating”, in the same way that Amazon sellers often do not charge sales tax and so can beat local retailers.

You have to know this is having an impact on local rents. I stayed at an airbnb in KC recently (in a not large condo building) and there were 8 “key boxes” outside the front door (for units being used as airbnb).

At a minimum any rentals should have to pay local taxes and show them on the invoice, and airbnb should have to provide an annual summary to the government for each property rented through its site so that owners can be charged income tax.

Don Quijones

Apr 26, 2018 at 5:49 pm

Two main reasons why Airbnb apartments are cheaper than hotels:

1. Fewer onerous regulations. Whether in Berlin, Paris, Barcelona, Parma or Venice the company and many of its hosts continue to systematically flout local laws and regulations. As Bloomberg recently reported, this disregard for the law is attracting hosts that are further damaging the company’s reputation.
2. Many of the hosts still don’t pay taxes. By Airbnb’s own admission, in the last ten years it has remitted little more than $592 million in hotel and tourist taxes throughout the world.
To put that in perspective, in the U.S. alone the hotel industry reportedly contributed $167 billion in federal, state and local taxes in 2016.(https://www.politico.com/newsletters/morning-tech/2017/11/16/at-t-time-warner-watch-223390).

Take away taxes and regulations and it’s incredible how much cheaper you can sell your goods and services.

So build a factory on your property in a residential zone? Run a brothel out of your house? I’m exaggerating, of course. But property is highly regulated — and for good reasons. Citizens get together at the local level and decide how to make this work so people can live together more or less harmoniously. But not everyone is happy, of course.

wkevinw

Apr 27, 2018 at 10:32 am

Yes, RE law is a very interesting area when viewed through the prism of “free markets”/economics.

A lot of “libertarians” are against concepts like zoning laws. I like to think I am a libertarian, but I can’t see a good way not to have some zoning, for exactly the reasons you list- factories around residences=not good, etc.

The whole concept of cities even comes into discussion; whether a certain population density is even sustainable- e.g. you might have a city around for hundreds or thousands of years, but in the end it could collapse on itself- as has happened… for reasons related to these issues.

Frederick

Apr 26, 2018 at 10:48 pm

I can’t see how neighbors can possibly be “happy” with a person renting their apartment with AirBnB Constantly strange unknown people coming and going I certainly wouldn’t be happy with it especially if I had young children at home

Nick

Apr 27, 2018 at 7:32 am

Precisely Frederick.
The place i sold was a CO-OP. Much more stringent rules then even a condominium. Traditional renting would have had me pay $200 to the building board in addition to HOA. The whole concept making it less appealing to rent to keep rental properties at a minimum and have a higher resident ownership.
So the new owner is definitely skimming the rules, hence the first warning. If he gets a second or third. they might force him to sell. And i have seen it happen with much lesser infringements, aka having too many kids and making too much noise leading to a board vote and forced selling.
But that’s greed for you. It could just as easily go the other way and everyone jumping on the bandwagon but what are the chances of that. =)
Having different strangers will eventually raise some eyebrows.

Michael Fiorillo

Apr 27, 2018 at 12:09 pm

There’s also the macro issue, which is residents being priced out of their own communities by the increasing unavailability of long term rentals, because short-term AirBnb rentals are so much more lucrative.

Al Swearengen

Apr 30, 2018 at 4:31 am

I’ve had a detached single-family house immediately adjacent to me (bought by what appear to be Chinese, btw) up on Airbnb for the better part of a year.

They seem to rent it roughly 30% of each month.

Never hear/have to interact/deal with anyone renting the place. In a way, preferable, as the prior owners from whom the Airbnb people purchased were fairly obnoxious.

Probably would think differently were I actually sharing walls with the property. But then I’d be all over ratting out the ownership to whatever authority I could find of course.

intosh

Apr 27, 2018 at 2:15 am

So you think it’s okay if I open a bar in a family neighborhood?!

It seems some people are just going back in time to repeat the past. There are reasons why we have zoning laws — they didn’t just appear in a vacuum. It’s because people realized it created problems by allowing residents to do whatever they wanted with/in their home.

If you just think about it for a minute instead of spewing this non-sense of “no government should…”, you would see potential problems.

Lee

Apr 27, 2018 at 4:56 am

intosh,

Ever been to Japan?

Seen the ‘zoning’ there? Or maybe should I say, ‘what zoning?’ They don’t seem to have had much a problem with that.

Anyway, I’d never use an AirBnB in Japan although the kid has and had no problem with them.

In Japan there already is a good market that provides for weekly and monthly unit/condo/apartment rentals and with less hassle than AirBnB.

Despite the tourist boom in Japan there are still lots of bargains to be found for hotels and they are sure a lot cheaper than here in Australia. Cleaner, and much better service too.

Anyway for those interested here is an article on AirBnB in Japan and the new rules there:

I have been to Japan. The Japanese society might as well be considered alien from another planet compared to the West.

If you complain about government intervention, rules and laws here in the West, well you should take a closer look at how Japanese docility are “forged” over there. Rigorously disciplined at home and in school. They are extremely respectful of others and of public properties. The Japanese society is incredibly in order. The whole is more important than the individuals.

I don’t know if in fact there is no zoning laws (I highly doubt there is none) but given how the Japanese society is, it may need less of it than it does here. But saying that this works for Japan and therefore, it would work here too is quite ridiculous.

backwardsevolution

Apr 28, 2018 at 2:27 am

Lee – Japan also has a declining population. And the Chinese jumped into the Japanese condo market (I remember reading an article about it) big time in the past decade. It would be the Chinese who are pushing this AirBnB.

Michael Fiorillo

Apr 27, 2018 at 12:13 pm

It’s to be expected from Glibertarians, for whom ” The Free Market” serves the same purpose as Santa Claus does for five year-olds.

Matt P

Apr 26, 2018 at 8:33 pm

AirBnB is a boil upon this beautiful, green Earth. The sooner it is banned from all cities, the better off we’ll all be.

cienfuegos

Apr 26, 2018 at 9:19 pm

Concerns with the pernicious effects of mass tourism are absolutely legitimate…this is true almost everywhere in the world that is any kind of “destination.” However, I fear the “concern” voiced by government officials has more to do with missing out on their “cut,” of the tax pie than with genuine feelings about the destruction of local neighborhoods and culture. At least that usually seems to be the case.

TropicalSunset

Apr 26, 2018 at 10:46 pm

Mass tourism has ruined the vibe of a lot of cities around the world. Florence and Venice Italy are two that come to mind. Turned them into European disneyland museums of their former selves. A shame. Thailand has really gone down a lot in its draw IMO due to mass tourism. Mass tourism really started to blow up about 10 yrs ago. Travel IMO was much more exotic and interesting 20-30+ yrs ago. Now as a tourist in many places (like western Europe), you are just like a widgit on the conveyor belt of mass tourism.

I actually prefer hotels over airbnb. I like the anonymity and privacy of hotels with professional maids, lobby’s, etc… I just want to check in when traveling, I don’t want to go into someones house and have to make small talk with the owner, pet his dog, etc…. In the USA, I find airbnb really overpriced actually, and often hotels cheaper. Also, many times when on road trips, I pick hotels very spontaneously the day I check in, this makes hotels better then airbnb. Airbnb often has to be done more in advance. But I think for longer term type stays, airbnb can be better.

Frederick

Apr 26, 2018 at 10:52 pm

Hotels cheaper than AirBnB That’s not Been my experience We stayed at an AirBnB in Raleigh for a month and have become close friends with the owner She was just so great you couldn’t help loving her

MC01

Apr 27, 2018 at 5:55 am

I think you’ll find a very close relationship between mass tourism and its two greatest enablers: large cruise ships and especially low cost airlines.

Thailand started to fill with foreign tourists (often of what I can only call highly disreputable nature) only after low cost flights started operating between Bangkok (both hubs), Chiang Mai and Phuket on one side and Zurich, Vienna, Frankfurt, Paris etc on the other.
The long queues of 737’s and A320’s, the workhorses of low cost airlines, waiting to land at Barcelona, Palma de Majorca, Ibiza and Malaga, especially when it’s vacation season in France, Italy, Germany, The Netherlands etc feed the Spanish tourism industry like a stoker fed the boilers of a XIX century packet steamer.

The funny thing is while more tourists than ever move around and the Internet makes it so much easier to find travel locations outside the beaten path, those same tourists seem to pack in exactly the same locations in immense numbers.
Avoid Madrid and the coasts (especially the Mediterranean one) and you won’t find many tourists in Spain.
Same with Italy and France: avoid the usual places (Paris, Rome, Lake of Garda, Côte d’Azur etc) and the crowd melts away. You don’t need to stray that far away: already behind Grasse the crowds disappear.

Many places like Barcelona are starting to have a bit of buyer’s remorse: budget tourists tend to have small budgets and often bad manners.
You cannot eat your lunch bought in a hard discount (they tend to follow into the footsteps of Ryanair and Airbnb like jackals follow into the footstps of lions and for exatly the same reason) sitting at the table of a cafe. That’s for paying customers. And definetely you should avoid answering Nature’s call in the street.

I think The Money Paw should be read not so much as a horror novel but as a warning…

Cameron S

Apr 27, 2018 at 3:41 am

” Spain’s eighth largest city by population, Palma, made history this week by becoming the first Spanish city to impose a blanket ban on all tourist apartments. Starting in July homeowners in the capital of the popular island destination, Mallorca, will not be able to rent out their apartments to tourists. Only owners of detached, single-family homes, which represent just 12% of the city’s housing stock, will be left untouched by the ban.”
—————————————————————————————————-

This has generated a lot of publicity.
Nice regulation if you have the staff to effectively enforce it which I doubt they have. In any event it will be interesting to see how it plays out in practice.

The Hoteliers are probably jumping for joy over this one and will no doubt be able to all increase their prices significantly especially in the peak and shoulder seasons. Assuming close to 95% effectiveness of the regulation this will mean that the annual tourist numbers in popular Palma will now be limited very largely by the number of available Hotel rooms in and around the area where the regulation applies.

raxadian

Apr 27, 2018 at 9:15 am

You know I am not calling this “Gig economy” anymore but Junk economy. Is a system that only exists thanks to huge debts and junk bonds, underpaid workers, huge social disruption…

Basically it makes people into junk to be thrown away after use.

Rejected By Target

Apr 27, 2018 at 10:51 am

I like to call it the “scrap” economy, as in “share the scraps”…

B Fast

Apr 27, 2018 at 1:00 pm

First, more supply increases prices? Makes no sense. Second, AirBnB accommodation produce no tax revenue? Well, tax ’em. Third, more tourist accommodation = more tourists; more tourists = more tourist dollars. I think that Palma didn’t think this out very well, but solved a problem in a knee jerk fashion.

Don Pelon

Apr 30, 2018 at 1:47 pm

intosh: yup- exactly this. In the same way Uber and Lyft don’t have to pay for city cab medallions or insurance for their “independent contractor” drivers. “Disruption” at its finest…

Clearly, there is huge pent up demand for more hotel rooms in these world-class, global tourist destinations that need new construction. Off-the-books “Hotelization” of residential rental housing is not the answer.